Fitch Rates AXIS Capital's Preferred Stock Issuance 'BBB'
March 15 2012 - 11:30AM
Business Wire
Fitch Ratings has assigned a 'BBB' rating to the $400 million
perpetual preferred securities issuance of AXIS Capital Holdings,
Ltd. (AXIS Capital). Fitch also affirmed AXIS Capital's 'A' Issuer
Default Rating and the 'A+' Insurer Financial Strength ratings of
AXIS Capital's operating subsidiaries. The Rating Outlook is
Stable. A full rating list is shown below.
AXIS Capital is issuing $400 million in Series C perpetual,
non-cumulative preferred shares with a dividend of 6.875%. The
proceeds will be used to repurchase the full $250 million of Series
B 7.5% perpetual, non-cumulative preferred shares and a portion of
the $250 million Series A 7.25% perpetual, non-cumulative preferred
shares. Consequently, financial leverage ratios are not expected to
change and preferred securities will total $500 million or
approximately 9% of total shareholders' equity.
AXIS Capital's debt-to-total capital, excluding unrealized gains
on fixed income securities, was 16% at year-end 2011. All classes
of AXIS Capital's preferred securities are treated as equity in
financial leverage calculations. AXIS Capital's Total Financing and
Commitments (TFC) ratio, which includes its preferred securities,
was considered appropriate for the current rating category at less
than 0.4 times (x). TFC is a comprehensive measure of debt-related
leverage, and is intended to flag those companies that have an
above-average reliance on the capital markets for funding.
The ratings continue to reflect AXIS Capital's conservatively
structured balance sheet, history of favorable reserve development
and benefits from premium diversification across business lines.
Balanced against these strengths was a poor operating performance
during 2011 due to heavy catastrophe losses.
Consolidated net income was $9 million in 2011, down
significantly from $820 million in 2010. AXIS Capital posted a
combined ratio of 112.3% for 2011, up nearly 24 percentage points
from 2010. Pretax catastrophe losses reached $931 million, but do
not appear to be out of proportion with its market share or
peers.
AXIS Capital has successfully grown its stockholders' equity in
its initial decade of operation, and operating leverage of 0.6x at
year-end 2011 is conservative relative to peers. AXIS Capital
manages its exposure to catastrophic events to a maximum of 25% of
stockholders' equity in a 1-in-250-year event.
Favorable reserve development continues to contribute to
earnings, amounting to $257 million or 7.8 percentage points during
2011. Maintaining a high level of favorable development will be a
challenge given the recent period of soft market conditions faced
by both primary insurers and reinsurers.
AXIS Capital's diverse premium base enables it to compete
effectively under a variety of market conditions as seen during a
difficult 2011 and reduces its exposure to any one segment of the
market. The company's net written premium during 2011 was split
between primary lines 43% and reinsurance 57%. Geographically the
premium base is spread across the U.S., Bermuda and Europe.
Key rating triggers that could lead to a downgrade include:
--Losses from a major catastrophic event that are worse than
expectations or when compared with industry and peer company
losses. Further, an inability to raise capital following a loss
event would be viewed negatively;
--An unfavorable trend that caused Fitch to question AXIS
Capital's better-than-peer underwriting results.
--A permanent increase in leverage measured by debt-to-total
capital in excess of 25% or net written premiums-to-stockholders'
equity greater than 1x;
--Reserve deficiencies indicating poor reserving practices.
Key rating triggers that could lead to an upgrade include:
--Improved market position measured by continued strong
consistent organic capital formation and double-digit returns on
equity with lower volatility than peers over an extended period of
time. Fitch considers a rating upgrade to be unlikely in the near
term given AXIS Capital's business profile and challenges in the
current market rate environment.
Fitch has assigned the following rating:
AXIS Capital Holdings, Ltd.--Series C 6.875% preferred
securities rating of 'BBB'.
Fitch has affirmed the following ratings:
AXIS Capital Holdings, Ltd.--Issuer Default Rating at
'A';--5.75% Senior Debt Rating at 'A-';--Series A 7.25% preferred
securities rating at 'BBB';--Series B 7.50% preferred securities
rating at 'BBB'.
AXIS Specialty Finance LLC--5.875% senior debt rating at
'A-'.
AXIS Specialty Limited (Bermuda)AXIS Reinsurance CompanyAXIS
Insurance CompanyAXIS Surplus Insurance CompanyAXIS Specialty
Insurance Company--Insurer Financial Strength ratings at 'A+'.
Additional information is available at www.fitchratings.com. The
issuer did not participate in the rating process other than through
the medium of its public disclosure. The ratings above were
unsolicited and have been provided by Fitch as a service to
investors.
Applicable Criteria and Related Research:--'Insurance Rating
Methodology' (Sept. 22, 2011).
Applicable Criteria and Related Research:Insurance Rating
Methodologyhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018
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